Investing in Mutual Fund for Beginners – The Complete Guide

At 19, I had a mutual fund and kept investing in it as little as 1500pesos every month. I treated my mutual fund as a retirement account, money I am saving for my(future)self.

Over the years I’ve received a number of questions about investing in mutual fund in Philippines. So today I decided it is time to create an everything-you-need-to-know kind of blog post. Treat this as a complete guide in investing in mutual fund- from requirements, procedure to the top things you need to know.

Mutual Fund

A mutual fund is a pool of money managed by a professional fund manager and invested in a specific type of securities to answer an investor’s financial goal in life.

Investing in mutual fund is also known as indirect investing in the Philippine Stock Market. Why?

Because when you invest in mutual fund you are basically entrusting your money to an entity. You can’t choose which stocks your money will be invested. You don’t need to worry of the whole buying and selling procedure.

It is the simplest and easiest way you can invest in stocks. You can treat it like a normal savings account but instead of parking your money in the bank, your investments will be put at work.

Subscribe to my mailing list

* indicates required

Email Address *

First Name

Fund Manager

The Fund Manager acts as your own fund expert. He handles every step of your investment guided by strict regulations. He monitors the value of your investments and see to it that the earning potential of the fund is maximized. He invests the fund’s capital to produce gains and income on your behalf.

Portfolio

Your mutual fund portfolio is structured and maintained to match the investment objectives stated in the prospectus of your chosen mutual fund. It answers where your investment goes or the composition of your mutual fund investment. Each portfolio differs depending on the type of mutual fund.

Types of Mutual Funds in the Philippines

There are a number of mutual funds available in the Philippines. Each mutual fund are further characterized based on the following:

Composition or where it invests

Horizon or how long it would be invested for maximized returns

Objective or why you are investing

Risk appetite or how much risk can you tolerate

If you have access on the SavingsPinay Libraryyou can easily download the Mutual Fund Comparison Guide I created to help easily assess which mutual fund is suitable for you. Join now in case you haven’t.

Equity Funds

An Equity Fund, also known as stock fund, invests in selected stocks and equity securities. A typical portfolio mix involves shares on properties, holding companies, transportation, telecommunication and power.

Bond Funds

Bond Fund invests in government and corporate debts. A typical portfolio mix includes treasury bills, preferred stocks and corporate bonds.

How to Choose Mutual Funds for Beginners

I recommend taking your time in identifying which mutual fund is best for you. In my own experience, I chose equity because I was still young and my goal is long-term capital appreciation. In the next 20-30 years I have no intention in withdrawing my money.

If you are having a hard time choosing, I suggest answering the four questions below.

Mutual Fund Fees and Expenses

Now mutual fund is all about entrusting your money to professional fund manager. Thus, there sure will be fund management services and administrative costs you need to watch out. These fees (though not that high) can still lower the return of your investment. There are asset management companies who will charge you if you redeem your mutual fund account within the first six months of investing. Applicable fees include, but not limited to the following:

Sales Load – percentage paid for every purchase or sale of shares. The higher your investment is, the lower the sales load fee you need to pay.

Exit Fee – percentage you need to pay when you redeem your investment. If you redeem within six months of opening your mutual fund account you will pay higher exit fee.

Management Fee – an annual fee paid to the mutual fund company for the maintenance of your investment. This fee is applicable to all investors no matter how low or high your investment is.

What are the requirements and procedures needed when investing in mutual fund?

Investing in mutual fund is easy. Depending on the financial company you will entrust your investments with, you will may need to do/to present the following:

Prospectus which is required and filed with the Securities and Exchange Commission. This document provides details about an investment offering as well as facts that an investor need to make an investment decision.

Account Opening Form which is required to be filled up for your information and other personal reference.

Investment Risk Profiling Questionnaire which will know your investment risk profiles and match you with the right companies to invest with.

Step 5. Prepare your IDs.

Step 6. Have you initial investment ready. Initial investment for a Mutual Fund account ranges from 5,000pesos to 10,000pesos. Additional investment is minimum of 1,000pesos

Step 7. Submit all your requirements. You may need to go to the nearest office or send through mail. Sun Life for example introduces an online facility that allows you to add, transfer and redeem shares anytime, anywhere. On FAMI I opened my account by submitting all the forms and requirements via courier.

How investing in mutual fund work?

First, investors with similar objective and risk profile invests in a mutual fund (equity, bond, money market or balanced, etc.),

Next, the investment will be pooled and taken care of by the mutual fund company,

Then, the Fund Manager will do the asset allocation, management of fund and everything in between. Mutual Funds do the trading (buying and selling) only on the closing price of the day. This means you can’t really control how your money will turn out. The NAVPS (Net Asset Value Per Share) can only be determined at the end of the day.

Finally, the fund manager will look at the current assets, determine the value and divides its number to the total number of outstanding shares. Since you are in a mutual fund, you don’t have direct control on the trading. The risks, gains and losses the fund will accumulate will be distributed proportionally to all investors.

How do I make money investing in mutual fund?

To recap, mutual fund is a type of investment vehicle wherein the investors’ money is being pooled together with other group of investors and invested in objective-specific assets selected by the professional fund managers. This means that the return of your investment solely depend on the fund manager’s selection and decision.

Mutual Fund doesn’t give fixed return. Your returns will solely be based on the Net Asset Value Per Share (NAVPS) on the day you redeemed your investment. Let’s do some Math, shall we?

In 2014 you invested P5000 on a mutual fund. The NAVPS at that time was 4.9.

Your Investment divided by NAVPS = Number of shares bought

So, 5000 divided 4.9 = 1,020 shares

Investment = Number of Shares x NAVPS of the day

Let’s say the NAVPS today is 5.43

Investment = 1,020 x 5.43

Return of Investment = 5538.6

So your P5000 investment earned P538.60 in two years! An increase of 10.772%

To simply put, if on the day of your investment the NAVPS is lower than 4.9, you will incur a loss.

Can my money be lost in mutual fund?

Again with the simple formula above, if the market is down or your fund manager wasn’t able to minimize the risk and loses of your shares then there is a big chance you will lose money on mutual fund. A mutual fund is good for beginners, but I do suggest not putting all your money in one basket. Try to diversify.

What if my current mutual fund is performing poorly? What can I do?

As a shareholder you have the right to change your fund manager. Try to come on shareholder’s meeting and voice out your opinion. You can also redeem your investment and reinvest on another mutual fund type or even in a new mutual fund company instead.

Sample Fund Fact Sheet of FAMI-Save and Learn Equity Fund.

How long will it take for my money to grow on mutual fund?

When it comes to mutual fund it is as always best to be invested in a long period of time. Based on this latest table, significant return will be felt at year 10 or longer. That’s why you need to invest now.

Last year I was supposed to withdraw my money on my current mutual fund provider because I was losing around P2,500. But, remembering my why and thinking I still have a lot of years to be invested I decided not to push through. It turned out to be a good decision because as of August 2017 my mutual fund investment in FAMI- SALEF is gaining already! Even more than the amount I lost.

Where can I use my mutual fund investment?

As the risks involved when it comes to investing in mutual fund is lower compared to direct stock investment but higher than normal savings account, you can use the returns on any long-term financial goal. Use it as your retirement fund, education fund of your future kids or as a future house and lot fund perhaps. If you have existing investments already you can use it as a way of diversification.

Can I become rich investing in mutual fund? How?

Mutual Funds are generally a safe investment vehicle. How you will become rich depends solely on your investment strategy. There are four strategies you can do to maximize the potential of your passive investment in mutual fund.

Invest in High-Yield Stock Funds

Stock Funds (Equities) are meant to generate the maximum possible return of your investment. This fund focuses on stocks that consistently pay very high dividends. Study the Fund Fact Sheet of your mutual fund and see if any of the following companies are included in the asset allocation:

PLDT

DMCI Holdings, Inc.

Aboitz Power

Globe Telecom

Cebu Pacific

Meralco-Manila Electric

Jolibee Foods Corporation

SM Prime Holdings

San Miguel Corporation

Ayala Corporation

Ayala Land Inc.

Megaworld Corporation

The above companies are part of top dividend paying stocks in the country today. A fund that includes shares with the above companies are considered high-yield stocks funds. They focus in capital gains by having highly aggressive trading style. They are not really the “trader” type but more of an active investor. Since a higher risk and attention is given to your investment, this mutual fund type will surely give you a higher return of investment.

Invest in High-Yield Bond Funds

Bonds is another mutual fund type that can make you rich. It is the safest type of mutual fund that can give stable annual return of investment and long-term capital preservation. By definition, bonds are contracts in which an investor lends money to a borrower.

Now how do you earn money through bond funds? Simple. As a compensation to the investor, the borrower agrees to pay interest rate at a fixed amount mostly twice a year. The borrower will also repay a stated sum of money at the end of loan payment which is known for as maturity date. An example of high-yield bond fund is a Fixed-Income Investment wherein your money is placed on government securities. And since the governments backs your investment, there is no risk involved.

Invest in Balanced Funds

If you want the best of both worlds then Balanced Funds is the right investment that will make you rich. It invests in both equity and bonds and match the specific goals and risk tolerance of every investor. It is nothing more than the space between growth and income and offers long-term financial stability.

What happens to my investments in mutual fund if I die?

As a deceased investor, your shares and it’s final value will be part of your estate. Your shares will be distributed to your heirs (surviving parents if single, spouse and children in married). The gains when investing in mutual fund is exempted from tax based on the Comprehensive Tax Reform Program but, you still need to pay estate tax based on your acquired assets.

Name some mutual fund companies in the Philippines I should know about.

ALFM Mutual Fund – Have the largest market share in the mutual funds industry in the Philippines. Offers six different fund types that meet various investment objectives. You can invest in several funds for a more diversified portfolio.

First Metro Asset Management – FAMI was the very first financial company I trusted with my mutual fund investment. I read good reviews about the company and they are managed by Metrobank which is a long-standing reputable bank in the country. They offer five different mutual funds for investors.

Philam Asset Management – This company is known for their life and general insurance but today its one of the leading asset and wealth managers in the Philippines. The company is known for its superior returns through active management, diversification and expertise. Philam plays a major role in the development of mutual fund in the country. They offer nine funds from different asset classes.

Philequity Management – Philequity is an investment management company established to help achieve long-term financial objectives of investors by offering different mutual funds. It’s Philequity Peso Bond and Dollar Income Fund are reognized as best performing bond funds under the 5-year category. They currently offer six different funds. You can read a guest post from a SavingsPinay reader about this fund :Philequity Dividend Yield Fund First Impression from Geli.

Sun Life Financial – Sun Life offers the Sun Life Prosperity Fund which is known for its simplicity, accessibility, affordability and returns. Opening is only 5,000pesos and has proven higher potential returns. There are nine different funds you can choose from.

Cocolife Asset Management – Cocolife is another company that offers mutual fund. Currently Cocolife Asset Management have three types of funds namely: United Fund Inc. which is an equity fund. Cocolife Fixed Income Fund which is a bon fund. Cocolife Dollar Fund Builder which is a growth and income- interest funds. All Cocolife funds seek to generate long-term total returns from interest income and capital growth by investing in a diversified portfolio.

Soldivo Strategic Growth Fund – This is a very new fund for Filipinos. The fund is considered as moderate-to-high risk type and invests in shares of the companies listed in the primary and secondary boards of the Philippine Stock Exchange.

Tips On Investing in Mutual Fund

1. Choose Your Fund Manager Wisely

Because you don’t have the freedom to select which stocks or bonds or securities to buy, the returns of your investment will be 100% dependent on your fund manager’s selection and decision. Research on the track record of the fund manager. You can easily do this by examining how the fund performed for the past 5 to 10 years. It will also help if the fund existed for a long time and is recommended by others as well.

2. Be informed

Research. Research. Research. Proper research can save you tons of money. Read blogs, financial books and ask others who have invested about their experience.

3. Monitor Your Investment Closely

Reviewing your portfolio on a weekly or monthly basis is important. You need to constantly monitor how well your investment is performing. Any slight change on the performance could mean a difference in your fund manager’s investment strategy.

4. Read the Fund Prospectus

This document is very important. It gives all the information you need to know about the fund you are investing. The prospectus is found on the asset management company’s website in a PDF form and usually easily accessible and downloadable. It serves as a legally binding contract between the fund and the fund holder that includes the following information:

Investment Objectives

Investment Strategies

Risks Involved Investing in the Fund

Fund Track Record

Distribution Policy

Fees and Expenses

Fund Management

5. Be a conscious investor

It is as always safe to have your first investment in a fund that has been tried and tested. There are higher risks involved when it comes to investing on New Fund Offers.

6. Have Realistic Expectations

Your investment goals should not be based on assumptions. Investing in mutual fund though highly advantageous, does not guarantee fast returns. Adjust accordingly.

7. Create a Broad Portfolio Income

I highly suggest that you diversify your portfolio income by investing in different type of funds. A well-diversified portfolio on different classes, instruments and fund types can earn you the most favorable return in the long run.

8. Invest in a Fund You Know

Don’t invest in a mutual fund that you don’t understand. Always invest in a fund that has good track record and invest in a diversified portfolio that answers your goals as an investor. Forget about the names, rankings etc. What matters most is you know what you are doing. The more you understand the business of the asset management company you invested with, the more you can monitor and analyze your mutual fund investment.

9. Secure Your Savings First Before Investing

Though Mutual Funds are considered safer parking lot of your money compared to direct stocks, it is still better if you have guaranteed savings first before investing. Mutual Funds can be an easy way to create a portfolio income but without savings your active income may suffer. Make sure that you have reserve money for real emergencies.

10. Invest Only with Your Surplus Money

Again, it is of high importance that you are able to keep a portion of your money on your savings before pushing the idea of investing. This way no matter what happens to your mutual fund investment you can still face the coming days, months and even year NOT empty handed.

11. Investing in Top-Performing Funds Does Not Guarantee Success

Last May, I shared a list of the Top-Performing Mutual Funds in the Philippines this 2017. However, please be fully aware that investing in top-performing funds does not usually guarantee success. With the current situation, a top-performing fund in 2017, maybe the worst fund in 2018 and may be on top again the following year. Take for example what happened to Security Bank’s UITF. They performed so well in 2012-2014 and suddenly had a bad performance in 2015.

Final Notes from SavingsPinay

I hope this post answered everything you need and you want to know about investing in mutual fund. I have been investing in mutual fund for the past three years and counting and I can pretty much say that it turned out to be a good decision on my side. I am excited to see how my investment will change in the coming years. You can always find my newest investment update on my monthly recap and extra income reports.

Subscribe to my mailing list

* indicates required

Email Address *

First Name

Are you investing in mutual fund too?

Follow the SavingsPinay FB Group and join the conversation at : SavingsPinay

Izza of SavingsPinay promotes financial literacy for the young and young at heart by providing insights and tips on budgeting, saving, investing and online entrepreneurship. Aside from this blog she also writes at www.izzaglinofull.com, a beauty and lifestyle blog for frugal Pinays and manages, www.izzagevents.com, a wedding and event business since 2011. For inquiries, topic suggestions or future collaborations email her atizza@savingspinay.ph

ABOUT THIS BLOG

SavingsPinay is a personal finance blog of a common Pinay. This blog promotes financial literacy for the young and young at heart by providing insights and tips on budgeting, saving, investing and online entrepreneurship. Set to be the #1 Personal Finance Blog in the Philippines, SavingsPinay guarantees quality posts every Monday, Wednesday, Friday and Saturday!